Wa`d
(Shariah Requirements and Optional Practices)
Exposure Draft
Issuance date: 6 December 2013
BNM/RH/CP 028-6 Islamic Banking and Takaful Department
Wa`d (Shariah Requirements and Optional Practices) Exposure Draft
Table of Contents
PART A Overview ....................................................................................... 1
1. Objective .................................................................................. 1
2. Applicability .............................................................................. 1
3. Legal provisions ....................................................................... 1
4. Effective date ........................................................................... 1
5. Interpretation ........................................................................... 2
6. Related legal and policy documents ........................................ 2
PART B Definition and nature of wa`d ...................................................... 4
7. Definition .................................................................................. 4
8. Nature ...................................................................................... 4
PART C Components of wa`d ................................................................... 5
9. Parties involved ....................................................................... 5
10. Subject matter of wa`d ............................................................. 6
11. Requirements of binding wa`d ................................................. 6
12. Implication of binding wa'd ....................................................... 7
PART D Application of binding wa'd with contracts ............................... 8
13. Application of binding wa'd with contracts ............................... 8
PART E Fulfilment and withdrawal of binding wa`d .............................. 10
14. Fulfilment and withdrawal of binding wa`d ............................. 10
APPENDICES .............................................................................................. 11
Appendix 1 Legitimacy of wa`d .................................................. 11
Appendix 2 Glossary.................................................................. 13
BNM/RH/CP 028-6 Islamic Banking and Takaful Department
Wa`d (Shariah Requirements and Optional Practices) Exposure Draft
As part of the objective to strengthen the Shariah-compliance culture among
Islamic financial institutions (IFIs), Bank Negara Malaysia (the Bank) is
embarking on an initiative to develop a Shariah-based regulatory framework.
The purpose of the framework is to ensure that the IFIs comply with Shariah. In
this regard, the Bank is issuing a series of policy documents on Shariah
contracts to enhance the end-to-end compliance with Shariah.
This Exposure Draft (ED) outlines the Shariah requirements and optional
practices relating to wa’d to facilitate IFIs in developing Islamic financial
services and products including the features of wa’d and its arrangement with
other Shariah contracts or concepts.
The Bank invites written comments from your institution on this ED, including
suggestions for particular issues, areas to be further clarified/elaborated and
any alternative proposal that the Bank should consider. To facilitate the Bank’s
assessment, please support each comment with clear rationale, accompanying
evidence or illustrations, as appropriate.
Written comments in the form of softcopy are preferable and may be submitted
to [email protected] by 10 January 2014. Hardcopy of the
written feedback may also be submitted to:
Pengarah
Jabatan Perbankan Islam dan Takaful
Bank Negara Malaysia
Jalan Dato' Onn
50480 Kuala Lumpur
Malaysia
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PART A OVERVIEW
1. Objective
1.1 This policy document outlines the Shariah requirements and optional
practices relating to wa`d. to be observed by IFIs in developing Islamic
financial services and products.
1.2 This policy document also covers wa`d and arrangement of wa`d with
other Shariah contracts or concepts.
1.3 This policy document aims to facilitate the understanding of the
Shariah requirements relating to wa`d that must be adhered to by IFIs
in order to ensure its validity.
2. Applicability
2.1 The policy document is applicable to all IFIs as defined in paragraph
5.2.
3. Legal provisions
3.1 The requirements in this policy document are specified pursuant to
section 29(1) of the Islamic Financial Services Act 2013 (IFSA).
4. Effective date
4.1 This policy document comes into effect on XX XX XXXX.
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5. Interpretation
5.1 The terms and expressions used in this policy document shall have the
same meanings assigned to them in the Financial Services Act 2013
(FSA), IFSA and DFIA unless otherwise defined in this policy
document.
5.2 For the purpose of this policy document:
“S” denotes a standard, requirement or specification that must be
complied with. Failure to comply may result in one or more
enforcement actions;
“G” denotes guidance which may consist of such information,
advice or recommendation intended to promote common
understanding and sound industry practices which are
encouraged to be adopted.
“Islamic financial institutions” or “IFIs” means –
(a) licensed Islamic banks and licensed takaful operators under
the IFSA;
(b) licensed banks and licensed investment banks under the FSA
which are approved under section 15(1)(a) FSA to carry on
Islamic banking business; and
(c) prescribed institutions under the DFIA which are approved
under section 129(1) DFIA to carry on Islamic banking
business or Islamic financial business;
6. Related legal and policy documents
6.1 This policy document must be read together with the following legal
and policy documents:
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(a) any Shariah Advisory Council (SAC) rulings published by the
Bank1; and
(b) Shariah Governance Framework for Islamic Financial
Institutions.
1
Including Shariah resolutions in Islamic Finance, standards, circulars or any directive pertaining to Shariah matter issued by the Bank.
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PART B DEFINITION AND NATURE OF WA`D
7. Definition
S 7.1 Wa`d, literally, a promise or undertaking, refers to an expression of
commitment given by one party to another to perform certain action(s)
in the future.
8. Nature
S 8.1 Wa'd is neither a contract nor an agreement. It is a unilateral promise
which is not binding in nature.
S 8.2 Notwithstanding paragraph 8.1, wa'd it is binding and enforceable on
the promisor if it fulfils certain requirements.
S 8.3 The bindingness of wa'd shall take effect upon the expression of the
wa`d by the promisor.
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PART C COMPONENTS OF WA`D
9. Parties involved
S 9.1 The parties involved in wa`d are the promisor (wa`id) and the promisee
(maw`ud lahu).
S 9.2 The parties involved shall have the legal capacity 2 to execute the
subject matter of wa`d.
G 9.3 The parties involved in wa`d may be a natural person or legal entity.
G 9.4 A minor may promise to enter into financial-related activities subject to
permission from his/her parent or legal guardian. The promise may
also be undertaken by the parent or legal guardian on behalf of the
minor.
S 9.5 A wa`d shall be executed by an expression of the promisor to perform
certain action(s) in the future.
G 9.6 The expression may be done verbally or by appropriate documentation
or by any other method accepted by customary business practice (`urf
tijari) which does not contravene Shariah principles.
S 9.7 Any term or condition mutually agreed upon which does not contravene
Shariah shall be binding on the parties involved.
2 The legal capacity of a person is defined as capacity to have rights and responsibilities; and capacity to
have legal effect to his action. Among the important conditions are that the person must possess sound mind and the capacity to distinguish between what is harmful or beneficial to one’s interests.
Legal capacity of a legal entity is defined as eligibility of an entity to acquire rights and assume
responsibilities.
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10. Subject matter of wa`d
S 10.1 The subject matter of wa`d shall be an action to be fulfilled in the
future.
S 10.2 The subject matter of wa`d shall be an action that is possible to be
fulfilled.
S
10.3 The subject matter of wa`d shall be Shariah-compliant actions and
shall not be used as a tool to commit non-Shariah-compliant activities
such as gambling.
G 10.4 The subject matter of wa`d may be in the form of financial or non-
financial matters.
S 10.5 If the promisor specifies a time for fulfilment of wa`d, he shall be bound
to the specified time.
G 10.6 The promisor and promisee may agree on a certain grace period to
fulfil the wa`d.
11. Requirements of binding wa`d
S 11.1 A wa`d shall be a binding wa'd if it is linked with a specific cause or
specified event, and the promisee will incur expenses by action or
refraining from action in reliance upon the wa`d.
S 11.2 A fee shall not be imposed on a wa`d.
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12. Implication of binding wa'd
S 12.1 The promisor shall not unilaterally revoke his wa`d.
S 12.2 The promisor shall fulfil his wa'd upon occurrence of the specified
event.
S 12.3 The promisor is considered to have breached the wa`d if he does not
fulfil his wa`d upon the occurrence of the specified event at its
specified time.
S 12. 4 Where the promisor has breached his promise, the promisee may claim
for compensation for any actual loss suffered and the promisor shall to
fulfil the claim by the promisee.
S 12.5 The promisee shall not be entitled to claim for fulfilment of the binding
wa`d in the event of death or insolvency of the promisor.
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PART D APPLICATION OF BINDING WA'D WITH CONTRACTS
13. Application of binding wa'd with contracts
G 13.1 In a wa`d to purchase, a promisor may provide the promisee a security
deposit (hamish jiddiyyah) to secure the undertaking to purchase the
asset. The security deposit may be used to compensate the promisee
against actual losses incurred in the event the promisor breaches his
binding wa`d.
S 13.2 Pursuant to paragraph 13.1, any excess of the security deposit after
compensation of the promisee against actual losses and/or costs, shall
be returned to the promisor.
S 13.3 The security deposit amount shall not be construed as consideration
for the binding wa`d.
G 13.4 The promisor may enter into a binding wa'd to sell an asset which is yet
to be owned by him provided that the promisor possesses the asset or
possesses authority to sell the asset at the time of execution of the
sale contract.
G 13.5 A future foreign exchange transaction may be arranged based on a
binding wa`d given by one of the parties involved.
S 13.6 The application of wa`d to execute bai` sarf shall not lead to a bilateral
binding wa`d.
G 13.7 The mudarib may enter into a binding wa'd to purchase the underlying
mudarabah or musharakah business upon maturity, dissolution or in
the event of default.
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S 13.8 Pursuant to paragraph 13.7, the price shall not be based on face/par
value of the underlying mudarabah or musharakah business.
G 13.9 The purchase price referred to in paragraph 13.7 may be based on
market value, fair value or based on mutual agreement.
G 13.10 A pledgor may give a binding wa`d to use an existing marhun
(collateral) for any future debt obligation.
G 13.11 A binding wa`d may be used to allow any future asset to be used as
marhun (collateral or security) for any existing debt obligation.
G 13.12 A promisor may give a binding wa`d to give a hibah to another party.
S 13.13 Notwithstanding paragraph 13.12, a borrower in a qard contract shall
not promise to give hibah to the lender.
G 13.14 A promisor may give binding wa`d to guarantee performance or
fulfilment of a person’s liability.
S 13.15 Pursuant to paragraph 13.14, the guarantee arrangement shall fulfil all
the requirements of a kafalah contract.
G 13.16 Pursuant to paragraph 13.1, 13.4, 13.5, and 13.12, the promisor may
give a binding wa`d contingent upon occurrence of a specified event or
condition.
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PART E FULFILMENT AND WITHDRAWAL OF BINDING WA`D
14. Fulfilment and withdrawal of binding wa`d
S 14.1 A binding wa`d is fulfilled when the promisor or his guarantor has
performed the wa`d obligation(s).
S 14.2 Upon fulfilment of a wa`d, the promisor is free from any obligations
related to the wa`d.
S 14.3 A binding wa`d is withdrawn under any of the following circumstances:
(a) The promisee agrees to the promisor’s retraction of the binding
wa`d; or
(b) The promisee decides not to claim fulfilment of the wa`d by the
promisor.
S 14.4 Upon withdrawal of the wa`d, the promisor is free from any obligations
related to the wa`d.
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APPENDICES
Appendix 1 Legitimacy of wa`d
1.1 The legitimacy of wa`d is derived from the Quran and founded on the
Sunnah of Prophet Muhammad (peace be upon him).
The Quran
1.2 The following verse of the Quran implies the general permissibility of
wa`d and the obligation to fulfil it:
i. وأوفوا بالعهد إن العهد كان مسؤولا
And be true to every promise - for, verily, (on Judgment Day) you will
be called to account for every promise which you have made (Surah
al-Isra’, verse 34)
ii. راعون دهم وعه لماناتم هم والذين
“Those who are true to their trusts and pledges” (Surah al-Mu’minun,
verse 8).
iii. يا أي ها الذين آمنوا ل ت قولون ما ل ت فعلون. كب ر مقتاا عند الله أن ت قولوا ما ل
ت فعلون
“O you who believe! why do you say that which you do not? It is most
hateful in the sight of Allah that you say that which you do not.”
(Surah al-Saf, verse 2-3)
iv. واذكر ف الكتاب إساعيل إنه كان صادق الوعد وكان رسولا نبيا
“Also mention in the Book (the story of) Ismail: He was (strictly) true
to what he promised, and he was an apostle (and) a prophet.” (Surah
Maryam, verse 54)
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The Sunnah of Prophet Muhammad (peace be upon him)
1.3 The following hadith implies the general permissibility of wa`d and the
obligation to fulfil it.
i. آية املنافق ما أخرجه البخاري ومسلم عن النيب صلى اهلل عليه وسلم أنه قال : .ثالث إذا حدث كذب وإذا وعد أخلف وإذا ائتمن خان
Abu Hurairah reported that Prophet Muhammad (peace be upon
him) said: There are three signs of a hypocrite; when he speaks, he
tells lies; when he makes a promise, he breaks it; and when he is
entrusted, he betrays his trust (Narrated by Muslim, Al-Jami` Al-
Sahih, Hadith no. 220)
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Appendix 2 Glossary
Terms Explanation
Hamish jiddiyyah A deposit placed to secure purchase of an asset before
execution of the murabahah contract.
Ibra’ Rebate.
Ijarah Lease or service contract that involves benefit/usufruct
of a certain asset or work for an agreed payment or
commission within an agreed period.
Istisna` An agreement to sell to a purchaser a non-existent
asset that is to be constructed, built or manufactured
according to the agreed specifications and delivered on
a specified future date at a predetermined price of the
istisna` asset.
Mudarabah Profit-sharing contract.
Murabahah A sale and purchase of an asset where the acquisition
cost and the mark-up are disclosed to the purchaser.
Musawamah Sale contract without the disclosure of the asset cost
price and profit margin to the buyer.
Musharakah Profit and loss sharing.
Musharakah
Mutanaqisah
An arrangement entered into by two or more parties on
a particular asset or venture which allows one of the
partners to gradually acquire the shareholding of the
other partner through an agreed redemption method
during the tenure of the contract.
Rahn Pledge/Charge.
Ta`widh Compensation.
Tawarruq Purchasing an asset with deferred price, either on the
basis of musawamah or murabahah, then selling it to a
third party to obtain cash.
Tawliyah Sale of a good at its cost price.
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Terms Explanation
`Urbun Earnest money paid to secure purchase of an asset in
an exchange contract which is considered part of the
price if the buyer decides to continue the contract and
is not refundable.
`Urf tijari Common business practice which is acceptable by the
community and does not contradict the Shariah rulings.
Wa`d Promise or commitment or pledge or covenant.